Is free trade a myth?

Do free trade and globalization have a positive impact on growth, wages and employment? Or do they adversely impact jobs, growth and local employment? I came across a blogpost in NYT's Economix that addressed this issue.

 The blogpost summarizes the views on the negative impact of globalization and free trade on wages and unemployment.

"For decades, economists resisted the conclusion that trade – for all of its many benefits — has also played a significant role in job loss and the stagnation of middle-class incomes in the United States. As recently as 2008, for instance, Robert Lawrence of Harvard, one of the country’s most respected trade experts, concluded that trade explained only a small share of growing income inequality and labor market displacement in the United States.

... 

One reason that economists may be uncomfortable talking about trade’s impact on jobs and wages may be concern that it could set off protectionist responses. And economists are right that expanded trade has certainly been good for the United States. It has brought us better and cheaper consumer goods, opened new export markets, lifted up many poor countries and strengthened American alliances around the world."

Citing studies that confirmed that growth in the U.S. was not taking place in sectors that were involved in trade, regions that faced competition from Chinese competition had higher unemployment and companies that were headquartered in the U.S. provided more jobs abroad than in the U.S. the post concludes that with growing markets in other countries trade should provide a boost to increasing opportunities and wages back in the U.S. A more critical analysis of free trade is found here which argues that the realities of trade in the renewable energy sector, especially solar, should necessitate protection in terms of increased State intervention.

Can we afford to ignore the principles of reduced barriers to trade in today's multilateral trade world? Though it may have a benefit, does it not have a huge cost too? What should the attitudes of countries be in the context of growing domestic pressures to increase trade barriers? While globalizing and reducing barriers may not be politically feasible, is it also economically unfeasible? 

Globalization, reduction of poverty and the role of the State

This blog, apart from dwelling on the legal aspects of the multilateral trading regime, also ponders over larger questions of globalization, equitable growth and development. Does international trade lead to equitable growth? Is everyone equally participating in the globalized economy and taking the benefit of open markets, competition and lower prices? Is the market restricted to a few while the rest are negatively impacted by the consequences of growing disparities? These questions, I guess will remain, and there are opinions on both sides of the divide.

YaleGlobal Online recently had an interesting piece by Laurence Chandy and Geoffrey Gertz titled With Little Notice, Globalization reduced Poverty which essentially argued that over the years globalization has led to a reduction of global poverty and large segments of population, especially in China, have risen out of deprivation. 

Articulating their thoughts on the reasons for this decline they state:

"These factors are manifestations of a set of broader trends – the rise of globalization, the spread of capitalism and the improving quality of economic governance – which together have enabled the developing world to begin converging on advanced economy incomes after centuries of divergence. The poor countries that display the greatest success today are those that are engaging with the global economy, allowing market prices to balance supply and demand and to allocate scarce resources, and pursuing sensible and strategic economic policies to spur investment, trade and job creation. It’s this potent combination that sets the current period apart from a history of insipid growth and intractable poverty."

Looking at a very optimistic future where millions would rise out of poverty into being "middle class" they point out that globalization has had a positive impact on improving lives. 

 "Taking a long view of history, the dramatic fall in poverty witnessed over the preceding six years represents a precursor to a new era. We’re on the cusp of an age of mass development, which will see the world transformed from being mostly poor to mostly middle class. The implications of such a change will be far-reaching, touching everything from global business opportunities to environmental and resource pressures to our institutions of global governance. Yet fundamentally it’s a story about billions of people around the world finally having the chance to build better lives for themselves and their children. We should consider ourselves fortunate to be alive at such a remarkable moment."

Where does the truth lie? Critics of globalization vehemently argue that globalization has led to marginalization, increase n poverty and destitution. Large populations are unable to participate in the national economy leave alone the global economy. Are both positions rhetorical? Countries exist in an interconnected world where multilateral trade rules continuously impact domestic policy. This domestic policy may be designed to address issues of poverty, development and equity as the countries see it. How does one negotiate this delicate situation? Can the role of States be completely ignored? WHat form the role of the State will take is a complicated issue. However, the abandoning of the State in a globalized world to usher in equitable development may not be the answer. While countries perhaps need to engage more with the global economy to partake of its benefits, a strong set of policies to enable millions to participate in the interconnectedness is crucial. What these sets of policies are and how they should be implemented is another debate altogether.The need for them however should not be disputed.

Employment, Dominican republic and Tobacco Plain packaging

(Cigarette manufacturing in the Dominican Republic)

The Dominican Republic is one of the complainants along with Ukraine and Honduras against the Tobacco Plain Packaging legislation of Australia. This piece in the Dominican Today about the dispute highlights the centrality of tobacco manufacturing in the Dominican Republic:

"While tobacco has been cultivated in the Dominican Republic for more than five centuries, the Dominican tobacco industry is a hundred years old. Tobacco export revenues represent roughly 8% of total exports in merchandise. The Dominican Republic is the largest net exporter of cigars in the world. Tobacco products represent 8.5% of fiscal revenue on merchandise taxation. There are around 5,500 tobacco producers, employing approximately 55,000 agricultural workers. Tobacco manufacturing employs another 63,000 people, of which 60 percent are women. Combined with the entire tobacco production chain, the industry thus generates around direct 118,000 jobs which supports approximately 350,000 people, according to information published by the Tobacco Institute of the Dominican Republic."

Thus, tobacco manufacturing and export is one of the main industries here as well as employment generator. It supports families and gives employment to a large number of women. Is this irrelevant in a dispute international trade law? If the Australian legislation, which is an exercise of its domestic policy space, is held to be compatible with WTO law (GATT, TBT and TRIPS), is the question of employment and job creation irrelevant to the issue. This is another classic case of the "loser" in globalization. An industry which was thriving can be possibly hurt by measures taken by other countries which may not be incompatible with international trade law. Those employed in these industries constitute a domestic constituency. How does the politics of domestic interests play out in international trade relations? While Dominican Republic's domestic will to engage in the trade is not impacted per se, the Australian measure does impact it in a negative way. Do considerations such as employment potential figure in the debate at all?

Airbus Boeing dispute - State support a hard reality

The Boeing-Airbus dispute at the WTO dispute settlement mechanism has been debated and discussed widely. Incidentally books to have been written on the subject. It offers a classic case of the failure of the dispute settlement system to provide a verdict in a timeframe. I have blogged about it here, here and here.

Jennifer Smith has a good synopsis of the two longest (and perhaps biggest) disputes at the WTO here. She has traced the history of both the disputes (Airbus and Boeing) and summarized the issues involved. Stressing on the importance these two cases have on the economy of the U.S. and the EU, she notes:

"These disputes may prompt negotiation of a new agreement regarding civil aircraft subsidies, and mayhave an impact on production and export competition in the civil aircraft industry. Civil aircraft are a top U.S. export, have a larger trade surplus than any other manufacturing industry ($47.2 billion), and support more U.S. jobs through exports than any other industry. The cases also have broader implications for the WTO system. Because of their massive factual records, both cases have already significantly impacted the WTO’s dispute settlement process. The cases also gave the WTO dispute settlement system an opportunity to flesh out anti-subsidy rules agreed to by WTO members in 1994 – they thus provide a potential roadmap for future challenges to government support programs for key industries. 

The industries involved and the records in the disputes were of an unprecedented magnitude. The disputes involve the largest dollar value by far of any WTO case to date — more than $2 trillion for the total plane market.The WTO had to bend its own procedural rules to handle the cases. Normally, WTO Panels aim to issue reports within six months.In both the Airbus and Boeing cases, the Panels’ decisions took more than five years."

The impact the two cases have on the WTO dispute settlement system is immense. It has tested the limts of the system as well as offered new jurisprudence on the interpretation of the ASCM and the extent to which the State can support industry. Commenting on the implications of the Airbus and Boeing disputes for the WTO DSM she rightly concludes:

"Furthermore, the disputes indubitably have far-reaching consequences – not only for Airbus and Boeing, or the United States and EU. The massive factual records at issue in the disputes tested the WTO dispute resolution system nearly to its limits. The inability of the system to issue findings in the disputes in a timeframe anywhere near the schedule provided for in WTO rules suggests the system may need additional resources or procedures to effectively handle such complicated disputes in the future. If the system does not provide parties with a timely and meaningful dispute resolution mechanism in such large cases, its relevance may diminish. 

In addition, the disputes demonstrate how difficult – yet necessary -- it is to effectively discipline subsidies that, even though they are not expressly contingent on exports or domestic content, nonetheless have massive trade-distorting effects. In the case of de facto export subsidies, the Appellate Body has established a test requiring a demonstration that the subsidy is “geared to induce the promotion of future export performance” – how difficult this test will be to meet in fact is likely to be the subject of future disputes. In addition, the disputes provide a roadmap of the kind of evidence that is required to demonstrate that domestic subsidies have caused serious prejudice and are thus actionable under WTO rules. It is vitally important that these rules be administrable and enforceable if the SCM Agreement is going to provide an effective means of disciplining not only the most blatant prohibited subsidies, but also the full array of subsidies that distort global trade."

I am just amazed at the extent to which countries go to support local industry when jobs and national growth are concerned. State support for aircraft manufacturing is clearly evident here. A talk about a plurilateral agreement covering aspects of State support for aircraft manufacture is being made. While subsidies are frowned upon by the ASCM, here are two cases that clearly stand out as classic examples of generous State support for industry in violation of the ASCM. While these two industries are important for the U.S. and EU economies (even to the extent of justifying a plurilateral agreement) what prevents other WTO countries from supporting "national" industries that provide lot of jobs in their respective countries. What implications does a longstanding dispute have on the compliance of the ASCM by other countries? In both cases the Appellate Body has given its decision. The complexity of the subject has resulted in the battle shifting to the area of compliance. While, at the end of the day, these cases might cull out fine jurisprudential principles for the interpretation of the ASCM, it is undeniable that State support for local industry is a hard reality in both the developed and developing world. Would countries have the moral authority to insist that States do not support particular industries when in fact it is such a hard reality?

WTO at cross roads

The WTO organized a WTO Public Forum on the topic "Is Multilateralism in Crisis?" recently. Pascal Lamy, the Director General of the WTO had this to say about the WTO in the present bleak scenario of the Doha impasse:

"The WTO, in many ways, is one of the most successful examples of rules-based multilateralism at work. Its capacity to administer and enforce the global trade rules, including in the present crisis, is widely recognized as a major success in international co-operation. But our members’ difficulties to agree to update our rule book also demonstrates that the WTO is not immune to the geo-economic and geo-political transformations of our time. The WTO is both an organization and an institution. And I dare say that it is in a better shape as a member-driving institution than as a member-driven organization."

Will the multilateral system overcome the pressures of economic crisis, preferential trade agreements and rising protectionism? Will it be able to weather the storm? Will the WTO survive the impasse of the Doha round of negotiations as well as steer the way for enhanced multilateralism? Are we going to see more protectionist trends both in the developed and developing worlds?

Andy Xie writing in the WSJ paints a gloomy picture for the future of the WTO. The author essentially posits that when the going is good everyone supports increased trade. however, in times of economic crisis, countries tend to become protectionist owing to domestic pressures and labour compulsions.

"The golden era of the WTO system is coming to an end. Indeed, trade disputes could multiply sufficiently to overwhelm the WTO system. 

Economists tend to blame the trade protection policies of the Western economies for causing or worsening depressions. The reality is probably more complicated. The labor market has limited capacity to cope with globalization. The political backlash against globalization is inevitable when the later moves too fast. 

Trade has grown twice as fast as GDP in the past two decades. This relationship is unlikely to continue. The best scenario is for the two to grow at the same pace. The global economy will probably be stuck around 2% to 2.5%. So would trade."

Is the future gloomy for globalization and the multilateral trading system? Will the compulsions of domestic politics, job loss, unemployment and local industry pressures override the need for opening up trade? Will the inequities of the global system outweigh the benefits that it offers? Are these just alarmist conjectures? Will the reality of global supply chains, dependence on international trade and the need to export prevail? Will countries become more dependent on the global economy or inward looking? What are the implications of these trends for the international legal system? How will it cope with it? Will it become redundant or reflect the realities of the time?

Dani Rodrik, national sovereignty and globalization

The issue of domestic policy space in the context of globalization and international trade rules has often been a subject matter of this blog. Does the international legal framework severely restrict national decision making abilities? Does it infringe upon democratic politics? I had blogged about this issue here.

Dani Rodrik has argued that hyper globalization, national autonomy and democracy cannot go together. Calling it a political trilemma, he is of the opinion that increased economic integration leads to a loss of national sovereignty and democracy. Increased globalization leads to a loss of democratic policy space.

Writing in the Project Syndicate and citing the example of the Eurozone, he argues:

"The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates. 

CommentsThat is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.Comments 

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

Comments 

The longer this choice is postponed, the greater the economic and political cost that ultimately will have to be paid."

While "globalization" or economic integration in the context of the Eurozone may have different connotations of domestic sovereignty, Joel Trachtman has argued that global trade rules do not severely curtail national will. By consenting to international agreements, countries do exercise their democratic choice. Further, the trade agreements themselves have tremendous scope for interpretation. Hence, even though a country is a part of an international legal system, the fine print of the agreements must be carefully engaged with to protect legitimate domestic space and national choice. While it is nobody's case that globalization does not have an impact on sovereignty, the extent and severity is the critical question. In times of crisis, the impact is played upon. However, global supply chains and interdependence on imports downplays the negative impact of globalization. Is it ever possible for countries to shun international mulitlateralism and become "protectionist" again? Will democratic will prevail on international economic realities? Are they irreconcilable? What do we make of examples of China which have actively participated in the globalized world after its entry into the WTO but at the same time maintained its national goals and commitments? Is there a middle path which carefully guards national democratic will but at the same time engages with the global framework?

Made in China and coffins

The "Made in China" syndrome pervades life generally. One need not look too far and wide to find that toy or shirt that is made in China. Signs of a globalized world or ineffective antidumping measures? I had blogged about this issue here.

Came across this interesting piece in the Deccan Herald, a local newspaper in India about Chinese made coffins coming into the market in the State of Kerala:

"A variety of products have flooded Indian market after the liberalisation process was initiated two decades ago and the latest one to make its entry is 'made in China' coffins. 

A consignment containing 170 coffins have arrived in Kerala with a Alappuzha district-based company entering into a tie-up with a firm in Shanghai."

Just could not resist the irony of the "death" of local manufacturing and the importation of Chinese coffins. Trade does tell us a story. 

Labour standards, tomato and trade

As a consumer would you prefer a product from another country made by adopting fair labour standards as compared to one made within the country with unfair labour means? While this is a question of individual conscience, this piece in the National Review raises a similar issue in the context of tomato grown in Mexico and the U.S. While I do not vouch for the veracity of the facts in the piece, it does make a point that international trade at times can be more equitable or justified in certain contexts. 

"Mexican tomato exports to the U.S. have grown rapidly, totaling about $2 billion a year and accounting for half the fresh tomatoes consumed during the winter months; the industry employs some 350,000 Mexicans in Mexico. The Florida farmers have seen their market share shrink and now want the U.S. government to limit the import of Mexican tomatoes.

But not the import of Mexicans. Mexican illegal aliens account for most of the workers in the Florida tomato industry, centered on the town of Immokalee. Worried that the government may get serious about ending illegal employment, the industry has been at the forefront of efforts to import unlimited numbers of foreign workers to slave away in their fields. And I don’t use “slave” to mean the captive form of labor represented by guest-worker programs. I mean actual slaves; there have been numerous slavery prosecutions of Florida tomato growers, whose exploitation of foreign workers is more brazen and appalling than any other industry in the United States."

On the condition of the workers this piece had more detail:

"I've seen estimates that nationally, 70 percent of the low-ranking farm workers are undocumented people from southern Mexico and Central America. These people arrive in this country — they're often shipped here from their home villages — and they arrive in a land where they certainly don't speak English. Many of them don't speak Spanish because they're indigenous so they're more comfortable in these indigenous languages." 

"They're stuck in the middle of the Everglades in some trailer camp. They don't know where they are. They're frightened to go to the police because they're here illegally and also because back home, the police are often thugs and you don't want to go to them anyway. So they're completely vulnerable. They don't want to make any noise — they just want to work, make a bit of money and that leaves them totally vulnerable."

However, there is flip side to this story.What if labour standards are used as a ground to restrict imports of goods? Labour conditions do differ vastly in different countries. Experts argue that the WTO is not the right forum to raise issues of labour standards. It could be used as protectionist tools n the hands of the developed world to restrict imports of products from countries that do not have the same standards as them. Thus while issues of labour conditions, minimum wages, working conditions are critical in the development discourse, linking it to trade may be detrimental to the very workers that it sees to protect.

Buy French - Rumblings of protectionism in the EU?

I have blogged about the issue of protectionism consistently whether by the developed world or enveloping countries. The trend is increasing across the globe due to a variety of factors and in various forms. This piece related to the history of the "protectionist" ethos in France.

Reuters recently reported that a French Minister had announced that consumers must encourage buying local French products. Simon Lester, in his inimitable way, has highlighted this at the IELP blog here.

Favouring domestic goods in comparison to imported goods is a clear violation of GATT non-discrimination provisions. However, whether this is a mere statement/intent/pronouncement  or is a clear enunciation of policy is unclear. If it is a statute/regulation/policy a WTO member could challenge France at the WTO. However, if it is only a case of political rhetoric or opinion, there is nothing much anyone can do.

Rumblings of protectionism in the EU?

Culture, human rights and the WTO

Tania Voon has written an interesting piece on the intersection of cultural values, human rights and WTO in this piece. Human rights does not normally figure in the discussion in international trade law and policy. The international law discourse on human rights having its basis in the UN Charter is seen more as a political discourse not finding its way in the international economic law and policy domain.

Tania Voon analyses WTO disputes pertaining to audiovisuals and food related risks and raises important issues of the role of cultural preferences in WTO jurisprudence. She concludes:

"The limited reflection on human rights within the WTO and the reluctance by many Members to introduce non-WTO public international law into the WTO legal framework (whether implicitly or explicitly) may help explain why WTO Members are having such difficulty in agreeing on how to treat subject matters related to culture such as traditional knowledge and genetic resources in the current negotiations. The failure to reach agreement in the Uruguay Round (or subsequently) on the proper approach to audiovisual products and printed publications may also make Members wary of opening discussions premised on culture or human rights in a general sense. Instead, Members may find themselves focused on technicalities such as the modalities of negotiation and the wording of minor amendments to the existing agreements, even where broader principles (such as adherence to the general objectives of the CBD) are agreed. However, the pragmatic acceptance of a wide range of perspectives on culture and its relationship to trade in the WTO has in some ways been beneficial. Culture is properly a secondary consideration in the formulation of many WTO rules, including some that might appear directly related to culture but that actually have different purposes, such as geographical indications. A healthy disagreement among WTO Members about the relationship between the WTO, culture and human rights may assist in keeping the rules under close examination and encouraging greater contemplation of that relationship within the organisation in future."

Article XX General Exceptions dealing with public morals would come the closest to giving flexibility to WTO members to engage with the multilateral system keeping in mind their cultural context. The issue of a particular WTO member's cultural context intersecting with international trade rules is in two ways;

1. When a country exercises its domestic regulatory choice based on its cultural context, it can be challenged in the WTO as being protectionist or unreasonably restrictive. The debate then revolves around whether a country has domestic regulatory space to pursue its cultural values.

2. When a country's products are impacted by a measure of another WTO member on the grounds of "cultural values", it impacts international trade and can be a "protectionist" tool by certain countries to protect domestic industry.

Thus, the adoption of values of human rights, labour rights, cultural mores in international trade law must be viewed with a bit of caution keeping in mind the issue of these measures becoming defacto non tariff barriers. In what circumstances they are permitted and to what extent they can limit free flow of goods across borders is a contentious one. It involves at times a threadbare interpretation of the  The political economy of the use of cultural rights to further one's national interest is a genuine threat.However, the need to engage in identifying the intersection is nevertheless necessary.

Apple, China and trade

A piece in the Harvard Business Review on Why Apple has to Manufacture in China by Karan Girotra and Serguei Nettessine makes an interesting read. They argue that labour costs may not be the only or major reason for manufacturing to shift to China - it is more about manufacturing risks and 'comparative advantage" China has in doing things on scale and quickly.

"In China, by contrast, manufacturers can deploy thousands of collocated engineers to introduce needed changes overnight, and large supply of labor allows to ramp up and ramp down capacity quickly. There is simply no factory capable of employing 250,000 workers day and night in the USA, surrounded by flexible and capable suppliers. So the location decision isn't really about labor costs — it's about manufacturing risk and where that risk is best managed (for a fuller discussion of risk in Business Models, see our recent HBR article)."

Another endorsement of the reality of global supply chains? Is "national manufacturing" in comparison to "most competitive manufacturing" politically desirable? While the former is termed being "protectionist", the latter is in tune with the notion of a flat, globalized world. There are lots of people on both sides of this divide in every country,  I guess.

10 things WTO can do

The WTO website has an interesting booklet on what the WTO can do. It is called "10 Things the WTO Can do". And the 10 Things are:

1.The WTO can ... cut living costs and raise living standards 

2. The WTO can ... settle disputes and reduce trade tensions
3.The WTO can ... stimulate economic growth and employment
4.The WTO can ... cut the cost of doing business internationally
5.The WTO can ... encourage good governance
6.The WTO can ... help countries develop
7.The WTO can ... give the weak a stronger voice
8.The WTO can ... support the environment and health
9.The WTO can ... contribute to peace and stability
10.The WTO can ... be effective without hitting the headlines

I found the point about settling disputes particularly interesting.

"The fact that the disputes are based on WTO agreements means that there is a clear basis for judging who is right or wrong. Once the judgement has been made, the agreements provide the focus for any further actions that need to be taken.The increasing number of disputes brought to the WTO does not reflect increasing tension in the world. Rather, it reflects the closer economic ties throughout the world, the WTO’s expanding membership and the fact that countries have faith in the system to solve their differences.

Sometimes the exchanges between the countries in conflict can be acrimonious, but they always aim to conform to the agreements and commitments that they themselves negotiated." 

The increasing number of disputes brought to the WTO does not reflect increasing tension in the world. Rather, it reflects the closer economic ties throughout the world, the WTO’s expanding membership and the fact that countries have faith in the system to solve their differences. 

Sometimes the exchanges between the countries in conflict can be acrimonious, but they always aim to conform to the agreements and commitments that they themselves negotiated."

It also highlighted the active role played by developing countries play in the dispute settlement mechanism. These graphics indicate the level of participation:

(Sources: WTO dispute settlement data; Raúl A. Torres,“Use of the WTO Trade Dispute Settlement Mechanism by the
Latin American Countries — dispelling myths and breaking down barriers”, WTO Staff Working Paper ERSD-2012-03, February 2012.)

Is Australia's Plain Packaging discriminatory in favour of local products?

The Tobacco Plain Packaging dispute is gradually progressing at the WTO. Honduras, one of the complainants against Australia, filed its complaint at the WTO which is available here. I have earlier blogged about the issue here, here, here and here. Apart from the main challenge on the grounds that plain packaging legislation is inconsistent with Australia's commitments under the TRIPS Agreement I found the points in relation to discrimination between local products and foreign products a bit untenable:

"  Article 3.1 of the TRIPs Agreement, because Australia accords to nationals of other Members treatment less favourable than it accords to its own nationals with respect to the protection of intellectual property;
...
  Article 2.1 of the TBT Agreement and Article III:4 of the GATT 1994, because the measures at issue result in treatment less favourable of imported products than of like products of national origin."

I found these two leal claims rather strange since the plain packaging applies equally to tobacco products manufactured in Australia and imported into Australia. Further, it is difficult to imagine de facto discrimination in this case. Am I missing something here?

Dumping chicken - South Africa takes on Brazil

The BRICS has been a strong interest group in espousing the developing countries cause at international fora. It signifies a coming together of emerging economies to strengthen economic cooperation. I had blogged about BRICs and their resolve against protectionism here.


(Courtesy:BBC)

Now BBC has reported  a dispute over chicken between two of the member countries threatens the interest group. South Africa has alleged that Brazil is dumping chicken into South Africa which is leading to unfair competition and loss of domestic jobs.

"South Africa proudly joined the Bric nations of major emerging economies last year, hoping it would boost its economy and give it far greater diplomatic clout. 

But the ink has barely dried on the paper and South Africa is already involved in a murky trade row with one of its new-found friends, Brazil. 

South Africa's poultry industry is accusing Brazil of dumping chickens on its market and farmers say they are now forced to cut jobs because they cannot compete with Brazil's "unfairly low" prices. 

Brazil has denied this and has taken the matter to the World Trade Organization (WTO)."

Earlier in June Brazil filed a case in the WTO against the imposition of provisional antidumping duties by South Africa on frozen meat from fowl from Brazil.

This case highlights that while trading bloc or interest groups do have some significance in international economic relations, ultimately a country's national, domestic interests play a dominant role in deciding trade policy. South Africa was threatened by a loss of local jobs by alleged dumping and it took the measure of imposing antidumping duties. Whether the imposition was legitimate will be decided by the dispute settlement mechanism. While countries do constitute trading blocs and espouse causes of the developing world in international fora, it is fortified by a keen protection of national interest. The existence of the BRICS would not deter South Africa to protect its local poultry industry against a fellow BRICS member. Whether the action is legitimate or globalization produces its losers is all together another question.

South south trade, protectionism and generalizations

Argentina has been charged with being increasingly protectionist with its import licensing procedures by the EU, Japan and the U.S. While this could be dubbed as a developed world vs. emerging economy dispute, Mexico joined the group complaining against Argentina at the WTO with this complaint questioning the north-south divide stereotype. How Argentina reacts to the trade onslaught will need to be watched, especially when it has taken on the EU and Spain against Spain's biofuel directive.

A World Bank study had declared Argentina as the most protectionist emerging economy with a number of import restrictive measures. Is this a north south tussle or are emerging economies equally impacted by protectionist measures by developing economies. The mexican challenge is an example of a developing economy being impacted by Argentina's (another emerging economy's) measures.

Chad P. Brown has done a detailed econometric study on trade barriers and their impact on south south trade and protectionism. In his study titled "Emerging Economies and the Emergence of South-South Protectionism" he analyzes the long run cost to emerging economies of South South protectionism i.e what impact does trade restrictive measures (like antidumping, safeguards and countervailing duties) of an emerging economy have on another emerging economy that is engaged with it? The paper asks the important question:

"First, major emerging markets have increased the scope of their imports covered by TTBs. Second, major emerging countries have a sizeable share of their total exports and exports sent to other emerging economies impacted by foreign-imposed TTBs. An important question yet to be addressed is what happens to exports when these temporary trade barriers are finally removed? To what extent do exports resume?"

The study comes to the conclusion that, barring China, emerging economies export recover sluggishly even though trade barriers are removed subsequently by other emerging economies indicating the negative impact they have on south south trade:

" Not only do more emerging economy exporters have an economically sizeable share of their exports impacted by TTBs imposed by other emerging economies, but such barriers may have effects that long outlive the duration of the imposed barrier. For even once the temporary barriers are removed, emerging economy exporters experience greater relative difficulty in resuming their exports – whether measured in volumes or in market shares – to other emerging economy trading partners."

Protectionist trends are dictated by strong domestic compulsions, primary among them being protecting one's domestic industry. It is often viewed as a part of industrial policy and as an effective tool to engage with the competition and often "unfair" onslaught of the developed economies. However, this study show that protectionism is not always the developing vs. the developed world. Emerging economies are increasingly involved in trade and any such protections measure does have an impact on their respective economies. To what extent this would influence sovereign behavior is, however, debatable since protectionist measures are dictated by strong national business sentiment. 

There is also ambiguity as to what actually constitutes protectionism at times. Do legitimate domestic policy interventions also fall under this category? For example, antidumping and safeguard measures are permitted as per WTO rules provided they satisfy the conditions set forth therein. Merely because a country is imposing antidumping duties does not make it protectionist. Similarly, a number of countries do not impose blatant trade barriers but are engaged more systemic violation of trade rules like offering subsidies and state support that violate WTO rules. The word "protectionism" is a much abused term as much as countries actually abuse it. One needs to tread cautiously on this slippery path at the same time keeping in mind the dangers of an inward looking path.

Ontario Feed in Tariff - Not a prohibited subsidy but violative of GATT provisions?

Breaking news of an interim WTO panel ruling on the Ontario Feed in Tariff case is coming in. The Globe and Mail reported it here. The EU and Japan had challenged the FiT program for renewable energy of Ontario which mandated use of locally manufactured Ontario products on the grounds that it violated the "local content" rules of the ASCM, TRIMS and GATT. I had earlier blogged about it here, here and here.

The WTO website has no official confirmation of the interim decision (the website is normally uptodate on decisions and happenings in the WTO). ICTSD has a detailed note on the interim decision:

"According to a confidential interim WTO dispute settlement report, a three-member panel has sided with the EU and Japan in their challenge of renewable energy support provided by the Canadian province of Ontario, sources told BioRes this week. The two countries had argued that the feed-in-tariff (FIT) system - put in place in 2009 - violates WTO rules because it requires participating electricity generators to source up to 60 percent of their equipment in Ontario. 

According to a confidential interim WTO dispute settlement report, a three-member panel has sided with the EU and Japan in their challenge of renewable energy support provided by the Canadian province of Ontario, sources told BioRes this week. The two countries had argued that the feed-in-tariff (FIT) system - put in place in 2009 - violates WTO rules because it requires participating electricity generators to source up to 60 percent of their equipment in Ontario .However, based on what is currently known about the confidential document, assertions by Brussels and Tokyo that the programme also amounted to illegal subsidies - dependent on use of locally produced equipment - have been rejected. At the time BioRes went to press, the ruling was not available."

If I understand this right, the panel has decided that the local content requirements are violative of WTO obligations of non-discrimination under GATT and TRIMS. However, they do not constitute a "prohibited subsidy" under Article 3 (1) (b) of the ASCM. Does this imply that an FiT as implemented in Ontario is not a subsidy as defined by the ASCM and hence does not amount to a "prohibited" subsidy? Or does it not have the characteristics of a prohibited subsidy as defined under Article 3 of the ASCM? The other major implication of this distinction of not amounting to a prohibited subsidy is the applicability of the general exception of Article XX of GATT. If it was declared a prohibited subsidy it would have been more difficult for Canada to justify its measure under Article XX of the GATT. This distinction has a major implication for renewable energy programs, especially FiTs, worldwide.

WIll eagerly await the November panel ruling.

GATS, electronic payments and country commitments

I have blogged about the China Electronic Payment Services case here and here. 

An ASIL Insight into the China Electronic Payment Services case by Panagiotis Delimatsis provides an overview of the implications of the WTO panel report on interpretation of various provisions of the General Agreement on Trade in Services of the WTO. The panel report as well as the commentary indicate the legal complexity and "country-specific" nature of GATS commitments.I am still very confused about the implications and import of this panel report. Concluding about the implications about the panel report, the author states:

"This case follows landmark decisions on the scope of GATS in US—Gambling and China—Publications and Audiovisual Products and is expected to further open China’s financial services market, benefiting American EPS suppliers in particular. Nevertheless, China will likely have several months to implement the Panel ruling. The Panel decision offered additional clarifications for the interpretation of Members’ Schedules of Specific Commitments under GATS. More importantly, as this case was not appealed, the Panel Report represents the only WTO dispute settlement ruling on the overlap in a Schedule of an  “Unbound” commitment (i.e., no liberalization) and a “None” commitment (i.e., full liberalization). The case confirms that the flexibility attributed to Members in drafting GATS Schedules can be a double-edged sword. At present, no clear solution exists to ensure predictability and security in the interpretation of GATS Schedules."

Unfortunately we will not have the Appellate Body opinion on this case as China has decided not to appeal.

Will require a few more decisions of the WTO panels and Appellate Body on the interpretation of GATS provisions to unravel the Agreement. India's challenge to the U.S. Visa rules perhaps can provide more answers?